February 10, 2015

Electrical Shortages could Impact Urban and Rural Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

There is a high probability that there will be electrical shortages and/or rationing in southeastern Brazil in the coming months due to the low water levels in Brazil's hydroelectric reservoirs. Electrical blackouts have already occurred in parts of southeastern Brazil and it is expected to get worse before it gets any better.

Brazil generates 73% of its electricity from hydropower and unfortunately December and January have been some of the driest on record in southeastern Brazil. For those two months, only 57% of the normal rainfall fell in southeastern Brazil. The hydroelectric reservoirs in the region were only 16.8% of capacity as of the end of January or 35% less than the long term average for that time of the year. The summer rainy season is still ongoing of course and heavy rains over the next two months could help to stabilize the situation, but in all likelihood, there will be some form of electricity rationing in the months ahead in an attempt to avoid an even bigger problem of blackouts.

This not only worries urban residents, it is probably an even bigger concern for rural residents and farmers in the region. The dry weather has already impacted agricultural production in the region in the form of reduced yields for soybeans, corn, dry beans, coffee, and sugarcane in addition to having an impact on livestock production as well. Dry pastures have reduced beef and dairy production and electrical shortages have impact poultry and swine production as well.

A lack of electricity during recent hot spells has already resulted in the death of chickens due to a lack of ventilation fans. When the electricity goes out, it can take up to 48 to 72 hours for it to return impacting dairy operations, refrigeration, irrigation systems, general farm operations, etc. Spikes in voltage during these episodes can also destroy electrical equipment on the farm.

In addition to a lack of electricity, the electrical distribution system in rural Brazil is also inadequate to accommodate the rapid agricultural expansion. The transmission lines are old and fragile and the system suffers from a lack of maintenance. This lack of available energy slows down the expansion of agricultural industries such as grain elevators or processing facilities especially in rural areas. The current system is simply inadequate to accommodate a large number of new customers.

It's not a good time to be a politician in Brazil. Along with the possibility of electrical and water rationing (see next article) a corruption scandal involving kickbacks of hundreds of millions of dollars from Petrobras, which is Brazil's state-run oil company, to many individuals in the ruling Workers Party has the potential to ensnare the current president, Dilma, and the past president Lula. Stay tuned because this could get very interesting.